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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers

A PMS investor starts with Rs 10,00,000. After 6 months the value is Rs 12,00,000, and the investor then adds Rs 4,00,000 so the portfolio begins the second half at Rs 16,00,000. At year-end the value is Rs 17,60,000. What is the time-weighted return for the year?

The time-weighted return is 32%. Each sub-period is measured separately, 20% for the first half and 10% for the second, and then linked geometrically as 1.20 times 1.10, which removes the effect of the investor's Rs 4,00,000 cash addition.

  1. A10%
  2. B32%Correct
  3. C26.5%
  4. D20%

Explanation

First half return = 12/10 - 1 = 20%. Second half return = 17.6/16 - 1 = 10%. Linking: 1.20 x 1.10 = 1.32, so the return is 32%. The 10% option uses the second period alone. The 20% option uses the first period alone. The 26.5% option wrongly divides total gain by total capital invested, which is not time-weighted.

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